EDITORIAL: Putin’s Vicious Circle


Putin’s Vicious Circle

“It’s clear to everyone that this work will make sense only if it is on an equal basis and won’t boil down to attempts to use our resources to solve the problems that have arisen that were not of our making.”

Vladimir Putin, Monday November 17th, speaking to his “presidium”

It’s amazing how much meaning Russian dictator Vladimir Putin is able to pack into a single sentence. Here’s what he said:

  • I rule Russia, not Dima Medvedev. Two days ago he promised Russia wouldn’t raise tariffs as part of a worldwide effort to respond to global recession? So what. I unpromise
  • Russia is no more bound by its signature on paper than was the USSR
  • Russia’s economic collapse had nothing to do with me, I’m innocent
  • Even though Russia’s economic collapse was controlled from abroad, I still say I’ve built a powerful and independent country fully able to provoke a new cold war with the world’s only superpower

Putin spoke of “protection of our national interests” as if his own conception of them justified humiliating his own “president” by undermining his authority, trashing Russia’s reputation, and ignoring the massive economic and political catastrophe unfolding around him.  Only a dictator increasingly detached from reality can make statements of this kind and believe he can get away with them.

But it’s far from clear how much Putin can really get away with.

The economic crisis his total incomptetence has spawned is already eating in deeply to his ability to carry through on his cold war threats. He’s been forced to announce major restructuring in the army, and faces a significant insurrection in the officer corps.  Indeed, the aggressive, panicky way in which he has responded to the crisis — cracking down even further on media reporting and seeking to lengthen presidential terms — indicates clearly that he has no substantive answer for the crisis and is only prepared to liquidate opposition, just as in Soviet times.

It must have been quite a shock for Russians to hear Putin declare late last week:  “We’ll do everything we can to prevent a repeat in our country of the problems of past years, the collapse of past years.”  Just imagine the plaintive response from Russia’s citizenry:  “What’s that?  Are we on the brink of such a crisis? But how can that be, when there’s nothing about it on TV? ”

ceu470Putin has already spent one-quarter of Russia’s foreign exhange reserves, a stunning $150 billion, at a rate that precisely tracks the decline in Russia’s currency value (see chart at left, from the Economist).  Putin is announcing a spree of tax cuts, and the price of oil has been under $50/barrel in recent days, still lower for inferior quality Russian crude — but next year’s budget was based on Russian oil at $70/barrel. Russia’s reserve funds will have to make up for all the lost revenue from taxes that Putin is lowering and oil sales Russia won’t be making,  as well as for the Kremlin’s need to contstantly raise interest rates in order to stem capital flow, or else Putin will have to drastically cut services or run the Kremlin back into massive, Soviet-style debt.  No matter how you slice it, Putin’s back is up against the wall. It’s already predicted that Russia will run at least a 1% deficit next year. Economic growth will be of no assistance.  Overall growth is projected to halve next year, and industrial growth is already at a total standstill.

But unlike other world leaders, Putin need not fear electoral retribution, because Russia doesn’t have elections.  He’s already planning to return to power under a revised legal framework that would allow him two more six-year terms, and he’s embarked upon a massive new crackdown on reporting about his faults, a crackdown that has all the earmarks of Stalin.

To slow the leeching of its precious reserves, Russia will have to devalue the ruble,  and that will spur even more inflation in regard to foreign products which can’t be replaced by the Russian market. That in turn will give rise to massive Soviet-style shortages, which will beget the need for even more repression by the Kremlin in order to keep the lid on an unhappy population.  Doing so will mean the Kremlin spends more and more money on repression, less and less to benefit the people of the country. And so on, until Russia meets the same fate as the USSR.

As the Economist puts it:

The central bank is now stuck between a rock and a hard place. Defending the rouble from further depreciation will bleed its reserves. Raising interest rates without liberalising the economy might suffocate it. Devaluing the rouble in one go would be more helpful right now, but it is politically impossible because the government (especially Vladimir Putin, the prime minister) has staked so much of its reputation on preserving a strong currency.

This is the vicious cycle of destruction that the Russian people brought upon themselves when they chose to be governed by a proud KGB spy.

2 responses to “EDITORIAL: Putin’s Vicious Circle

  1. For the most part is correct … but too tendentious for to be credible, even if it quotes from The Economist. Removal of context quote respectively (incidentally I know this Putin’s speech ) does not take the correct information but by manipulating public opinion. What a pity !!


    Oh, it’s a pity alright. A pity that you don’t see the ridiculous contradiction between your first two phrases, or the amazing hypocrisy inherent in failing to specify the context you are referring to or address any point in detail. Basically, your comment is gibberish. Indeed, a pity.

  2. “is gibberish” – you probably wanted to say that it is for knowledge … it is. I did not have enough time to explain what is ok and that not … but I think you understand. Tip: remove references tendentious in the text and even will be a good material. Or write 2 Posts: one in which you say subjective views about Prime Minister’s speech & comp, and one in which to present real problems of Russia (they exist and is good to know by everyone). If you mix, risk not listen to anyone. And do not be mad at me!

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